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Eaton's earnings came in above analyst expectations, but slowing economic growth continues to be a headwind.

Alexander Cutler, the CEO of Eaton Corp. PLC(NYSE:ETN), summed it up well when he said, simply, "We had a very strong quarter." The electrical and hydraulic product specialist posted earnings of $1.26 a share in the third quarter. That allowed the company to beat consensus estimates by a few pennies a share.

However, Eaton also reduced its growth expectations for its core end markets -- which was a disheartening sign for the future. Let's take a closer look at the quarter.

Top and bottomThird-quarter sales of $5.7 billion were up 2% year over year in the third quarter. Although that was roughly $100 million shy of analyst estimates, Eaton's earnings still topped analyst expectations. Adjusted earnings per share, which excluded $0.03 of integration costs, came in at $1.29, up 15% year over year. (GAAP earnings per share were $1.26, three cents above consensus estimates.)

Source: Wikimedia Commons.

Perhaps most impressive was the company's operating margin, which hit a record 16%. Eaton's cost containment and productivity enhancement efforts are clearly having the intended effect and helped make up for the top-line miss. In fact, the top line was slightly short of even the company's own expectations. Also helpful was the still relatively smooth integration of the Cooper acquisition, the largest purchase in the company's 100-year-plus history, where synergies "remain on track" for the full year.

The future's uncertainYet the future is less clear than Eaton might like. For example, while bookings were strong in the company's Electrical Products and Aerospace groups (up 5% and 12%, respectively), they were weak in the Hydraulics area (down 6%). And the Vehicle division's strength in the U.S. market was balanced against weakness in South America.

Looking at the bigger picture, Cutler noted in the earnings release, "Reflecting the continued slower growth in our markets outside North America, we now estimate our markets in 2014 are likely to grow 2%, down from our prior estimate of 3%." Up until midyear, Eaton had been sticking by its 3% expectation.

So while future orders are, overall, doing well, there are signs of weakness in some divisions. Moreover, growth in the company's end markets isn't living up to expectations. While management is still holding to its current full-year earnings guidance, the low end of its guidance is a penny ahead of consensus estimates. It appears that headwinds could be mounting.

Getting leaner and meanerThis outlook, of course, makes the company's productivity enhancements and Cooper synergy savings all the more important. These efforts were a key support to the third quarter's earnings advance, since the top line was soft. So continued efforts here will be key for the rest of this year and probably next. The company is doing the right thing by trimming costs as it looks at the potential for slower growth ahead.

Share buybacks have been helpful, too, but that's a double-edged sword. Buying shares back means there are fewer shares over which to spread earnings, which is good. The company bought back around $225 million worth of shares in the quarter, with a total of about $325 million through the first nine months of the year. But although the shares are off notably over the past few months, the company's price-to-earnings ratio is slightly above its trailing five-year average and roughly in line with its peers.

So Eaton isn't exactly getting a bargain-basement price as it buys back shares. Yes, earnings will benefit, but the ultimate cost for shareholders could be larger than expected if economic weakness continues and further constrains top-line growth. If fickle Wall Street sends Eaton's shares lower, management will have overpaid to prop up earnings -- an all too frequent event in the business world.

A leader in a good spaceAll things considered, investors should welcome Eaton's share price weakness in recent months. The company is a key player in markets with positive long-term prospects, and that remains true even if near-term prospects are less then certain. The share price pop on the solid third quarter could be a turning point or just a pause in the recent down trend. Although the stock is hardly cheap, if Wall Street gets too focused on the currently slowing global growth and continues to punish the shares, Eaton and its roughly 3% yield could start to look more and more like a bargain.